As I Await Microsoft, Alphabet Earnings, Here’s What I’m Not Doing
No one has an edge in guessing how a stock will react to earnings. The edge comes from having a plan for every outcome.
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Market action is mixed, with breadth running slightly negative as investors wait for the Fed’s interest rate decision and tonight’s earnings reports from Microsoft (MSFT) and Alphabet (GOOGL). Most of the Magnificent Seven names are lower as investors grow nervous about the potential reaction.
Trade the Reaction
As I’ve said, I’m more interested in trading the reaction after the news is released than in betting on what will happen when the numbers hit. That is the difference between a bettor and a speculator. There is far less risk in trading the reaction, and there is generally plenty of volatility after a report to offer some good potential returns. Many traders are drawn to betting on an outcome, but that is no different from gambling. No individual trader has an edge in those circumstances.
My main activity right now is making sure I know when my stocks report and having a plan for each of them. Regular readers know that Xeris Biopharma (XERS) is one of my favorite longer-term names. I’m holding my position into its report before the open on Nov. 5. I expect the numbers to be strong, but that doesn’t tell me how the stock will react. If it has a negative reaction, I’m likely to add to the position. If it gaps sharply higher, I may take some partial profits with a plan to buy them back later.
I don’t know what the stock will do, but I’m ready to react to whatever happens. There is always risk when you hold into an event like earnings, and that is why position size is so important. Hold only as much as you can live with if the reaction goes the wrong way.
SpaceX Shows How It Works
SpaceX (SPCX), which I’ve been writing about a lot, is providing another example. The stock is down about 3% this morning on two headlines, and neither one changes anything that matters.
Reuters reports that a Trend Micro research unit found an Israeli ad-tech company was one of the largest sources of ads shown to Starlink users and likely used those ads to locate them. That is a third party abusing the ad system, not a network breach, and it shouldn’t meaningfully affect subscribers or contracts.
The second item is that SpaceX is pausing Falcon 9 launches from Florida for about six weeks to get pad crews ready for the first Starship launch from Kennedy Space Center. That trims the fourth-quarter launch count and slows Starlink satellite deployment for a few weeks. But launch is the smallest of the company’s three businesses, and the revenue is delayed, not lost. What the pause tells you is that Starship from Florida is coming sooner, and that is the milestone the bulls have been waiting for.
The size of the move has more to do with what is coming tonight. SpaceX is one of the highest-beta ways to hold an AI position, so it is one of the first things traders trim when they cut exposure ahead of a Fed decision and two megacap reports. The same thing happened last week, when the stock faded after its post-earnings pop.
I used today’s weakness to add to my position under $143. I’m watching the $ 140 area if tonight’s reports bring another round of selling. A close below it on heavy volume would tell me to stop adding until there is better support.
Game Plan
My style is incremental and reactive. I don’t buy a stock and sit there hoping it goes up. I buy it and then adjust the position as the stock develops and the news unfolds. I let the price action guide me rather than counting on fundamental arguments to hold the stock up. Tonight’s reports will give me plenty to react to.
At the time of publication, DePorre was long SPCX, XERS.
